The latest median house price to work-place earnings ratio demonstrates that the affordability of housing nationally has improved from 2022 to 2023, with households now needing to spend 8.26 times the median income to access a median priced house, down from 8.47 in the preceding year.

This improving position is likely, at least in part, to be accounted for by the cost-of-living crisis with households now having to spend a greater proportion of their income on basic necessities including heating and food, and thereby having less resource to compete in the housing market, which in turn will have constrained house prices. This should not therefore be taken as being indicative of an improvement in the ability of households to access the housing market. Indeed, given the cost-of-living crisis, it is likely that precisely the opposite is true.

This new data also affects the minimum local housing need that arises from the Government’s standard method. As the median house price to work-place earnings ratio has improved, the standard method now suggests that there is a need for fewer homes, notwithstanding the deepening housing crisis. According to the standard method, there is now a minimum local housing need for 288,109 homes per annum nationally, down from 294,385 in 2023, and even further from the Government’s overall objective of delivering 300,000 per annum in England.

An insufficient number of homes have been delivered nationally to meet the need for 300,000 homes per annum, with only 234,397 built in 2022/23. The necessary consequence of this is that the need for housing will have increased regardless of the results of the Government’s standard method.

In this context, it remains the case that local authorities need to be aiming above the minimum local housing need to address housing needs in full and to deliver the 300,000 homes per annum sought by the Government. With the standard method still providing a minimum target below 300,000, it is inevitable that we will continue to see a shortfall in national housing delivery without this.

Furthermore, we strongly believe local authorities need to be aiming above the minimum target to even achieve it. Unforeseen events will always unfold when it comes to delivering specific sites which cause delays and, in some instances, no delivery at all. We have to plan for the fact that not every allocated housing site will be delivered and therefore we have to overprovide in relation to the identification of housing land in local plans to provide any chance of delivering the required numbers and improving the accessibility of the housing market.

The key points to note from a regional perspective with the new affordability ratios are:

  • Regionally, London continues to have the highest affordability ratio at 12.54. Since 2013, it has increased by 40% (from 8.96 to 12.54).
  • The North East now has the lowest affordability ratio of 4.91, and the affordability of housing has improved by 2% in the last decade (from 5.02 to 4.91).

Pegasus Group has compared the 2022 and 2023 affordability ratios to look at how the new ratios impact on the standard method housing figures. It should be noted that this is initial analysis and may be subject to change.

Impact on the Standard Method

The map below presents the capped standard method figures (with applicable urban uplifts) based on Pegasus Group’s initial analysis of the data. It shows the annual minimum local housing need based on the Government’s standard method calculation between 2024 and 2034 based on the ONS 2014-based household projections and the ONS 2023 median workplace-based house price to income ratio data.

Clicking on each local authority on the map also presents the annual standard method figure over the previous ten-year timeframe of 2023-33 using the 2022 affordability ratio data, as well as the total change and percentage change between the two figures.

 

Key points to note from the standard method calculations are:

  • Using the 2022 affordability data, the total standard method figure for housing in England was 294,385 per annum between 2023 and 2033. When the 2023 affordability ratios are used in the calculation for the period 2024-34, this decreases by over 6,000 (a drop of 2%) homes per annum – to 288,109.
  • Looking at individual local authorities, Brent (+11%) and City of London (+10%) have seen the biggest percentage increases in the minimum local housing need as the affordability of housing has materially worsened in these areas.
  • Redcar and Cleveland saw the largest percentage decrease from 2023 to 2024 at 24% (a decrease of 14 homes per annum – from 59 to 45) as the affordability ratio has improved.
  • In absolute terms, Brent saw the largest increase in the minimum local housing need with an increase of 403 homes per annum (from 3,778 to 4,180).
  • At the opposite end of the spectrum, Tower Hamlets sees the largest absolute decrease in the minimum local housing need according to the standard method with the figure declining by 507 homes per annum (from 5,697 to 5,190).

Commenting on the new ratios, Neil Tiley, Senior Director, says:

“The new data demonstrates that across the nation households now need to spend a lower multiple of the average earnings to access an average priced house than they did previously. This general trend is likely to have been influenced by the cost-of-living crisis with households needing to spend a far greater proportion of their income on other necessities, and thereby having less to spend on housing with consequent comparative real term reductions in house prices. It is not therefore necessarily reflective of improvements in the affordability of housing but instead it is likely to be symptomatic of constraints on household finances.

However, even without the cost-of-living crisis, it would remain the case that housing is unaffordable for a significant proportion of the population given that an average priced house now costs 8.26 times the average income, when mortgage providers will typically only lend between 4 and 4½ times one’s salary.

Additionally, looking at the longer-term trend, the position is clearly worsening, with households needing to spend 6.76 times the average income to access an average priced house a decade ago, rather than 8.26 times now. 

With the number of homes being built consistently failing to meet the 300,000 per annum target identified by government and the ongoing cost-of-living crisis, it is unlikely that households will find that the prospects of accessing a home will significantly improve any time soon. As set out in national policy, we need to see an increase in house building across the entire country to support long-term sustainable growth, improve the accessibility of housing and to realise the ambition of levelling up the economy.”